Euro Rebounds Above 1.1500 as Iran Deal Lifts Risk Sentiment, But Fed's October Hike Pricing Caps Gains

EUR/USD recovered to around 1.1515 in Thursday's early Asian session, with the Euro strengthening against the Dollar on improved risk sentiment after President Trump signed a memorandum of understanding with Iran to end the war. Traders now turn attention to the US Initial Jobless Claims report due later in the day.

A Deal With a Clear Paper Trail

The White House confirmed Trump and Iran's Masoud Pezeshkian electronically signed the MoU, BBC reported late Wednesday — following an earlier electronic signature from Iranian parliamentary speaker Mohammad Bagher Ghalibaf and US Vice President JD Vance on Sunday. According to Bloomberg, the US and Iran are expected to formally sign the agreement in Geneva on Friday. This step-by-step signing process, rather than a single announcement, gives the deal a degree of procedural credibility that has helped lift risk appetite for currencies like the Euro in the near term.

The Fed Pours Cold Water on the Risk Rally

Offsetting some of that optimism, the Federal Reserve voted unanimously on Wednesday to hold its benchmark rate at 3.50%–3.75% in Kevin Warsh's first meeting as Chair. Officials signaled a rising chance of higher rates as they assess how the Iran conflict has fed into inflation. During his press conference, Warsh stated plainly that "price stability" would be the Fed's guiding principle — a clear signal of where his priorities lie.

The market reaction was decisive: money markets are now fully pricing in a rate hike by October. That specific timeline matters more than the general "hawkish" label — it gives traders a concrete window to position around, rather than an open-ended expectation. A hawkish hold paired with this pricing tends to support the Dollar and cap how far EUR/USD can run on Iran-deal optimism alone.

Two Forces Pulling in Opposite Directions

This is the core tension shaping EUR/USD right now: geopolitical de-escalation supports risk currencies like the Euro, while the Fed's clearly telegraphed October hike timeline supports the Dollar. With both forces active, the pair's next move likely depends on which narrative dominates incoming data — particularly Thursday's Jobless Claims report, which could either reinforce the Fed's hawkish case (if labor data stays resilient) or introduce doubt about the economy's ability to absorb higher rates.

Why This Matters for Southeast Asian Traders

A more hawkish Fed with a defined October timeline typically strengthens the Dollar against ASEAN currencies as well, even as easing Middle East tensions provide some offsetting relief on energy costs for oil-importing economies like Thailand and the Philippines. Regional traders watching EUR/USD as a risk-sentiment proxy should note that the October pricing window gives a concrete date to monitor for potential Dollar strength across other pairs, not just EUR/USD.

What to Watch

Thursday's US Initial Jobless Claims data, Friday's formal Geneva signing ceremony, and any incremental commentary from Warsh or other Fed officials that could firm up or push back against the October hike timeline.

Sources: BBC, Bloomberg, Federal Reserve.

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